WASHINGTON — The Supreme Court on Tuesday questioned government claims that it should be allowed more time to sue some fund executives for securities fraud.
The high court on Tuesday heard arguments from Gabelli Funds LLC executive Bruce Alpert and former executive Marc Gabelli, who say the Securities and Exchange Commission missed its chance to sue them for purportedly committing securities fraud by allowing a hedge fund to rapidly trade shares of a mutual fund.
Gabelli and Albert say a five-year statute of limitations started no later than 2002, when the action occurred. The SEC argued the clock didn’t start until it discovered the practice in late 2003, which put the 2008 lawsuit within the time limit.
The 2nd U.S. Circuit Court of Appeals agreed that the time limit starts with discovery of the practice. But Gabelli and Albert’s lawyers noted that government officials had never asserted the ability to stretch out the statute of limitations before this case. “The position that the SEC is taking now is a novel position that to our knowledge has not been taken by other regulators and hasn’t been taken by the SEC until quite recently,” Lewis Liman said.
Several justices agreed. “What’s extraordinary is that the government has never asserted this, except in the 19th century, when it was rebuffed and repudiated its position. It isn’t just that there are no cases against you. It’s you’ve never - the government has never asserted it before,” Justice Antonin Scalia said.
Justice Stephen Breyer noted any statute of limitation extension would affect more than just security cases. “It is a statute that applies to all government actions, which is a huge category across the board,” said Breyer, who said extending the time limit could affect government enforcement actions involving Social Security, Veterans Affairs and Medicare.
“It seems to me to have enormous consequences for the government suddenly to try to assert a quasi-criminal penalty and abolish the statute of limitations, I mean, in a vast set of cases,” Breyer said.
Justice Elena Kagan suggested that the only reason the government is trying to stretch back and go after Gabelli and Albert is because the New York attorney’s general office got there first.
“The government had decided not to go after market timers,” she said. “And it changed its decision when a state attorney general decided to do it, and it embarrassed them that they had made that enforcement priority decision, and then the government made a different enforcement priority decision.”
Justice Department lawyer Jeffrey Wall said he didn’t think that suggestion was fair. He also said he couldn’t believe that lawmakers intended to create such an obvious loophole.
“I cannot imagine that theCongress, which allowed agencies to seek civil penalties ... would have thought that the only people who could get away without paying them are the ones who commit fraud or concealment and that remains hidden for five years,” Wall said. A decision is expected by summer.
In other business, the court has said federal judges cannot indefinitely delay a death row inmate’s federal appeals to see if the convict can become mentally competent enough to help his lawyer. The high court unanimously ruled Tuesday against Arizona death row inmate Ernest Gonzales and Ohio death row inmate Sean Carter.
Inmates appealing state death sentences to federal court have a right to a lawyer. But the courts never said whether the inmates have to be mentally competent enough to help their lawyers with their federal appeals. Gonzales and Carter wanted the high court to say that federal judges have discretion to hold up proceedings indefinitely until the inmates are ready.
Justice Clarence Thomas said that “at some point, the state must be allowed to defend its judgment of conviction.”
The Supreme Court also unanimously sided with Los Angeles-area governments that are fighting a lawsuit over pollution from urban storm water runoff.
Justice Ruth Bader Ginsburg wrote for the court in a narrow holding Tuesday that the federal appeals court in San Francisco wrongly ruled for environmentalists in their lawsuit against the Los Angeles Flood Control District. At issue is responsibility for billions of gallons of polluted water that flow into the Los Angeles and San Gabriel rivers and eventually the Pacific Ocean after heavy rainfalls.
The environmental groups say levels of bacteria from animal feces and toxic metals frequently exceed water-quality standards. The suit involved compliance with an older permit regulating water pollution. Ginsburg said a new permit more precisely monitors sources of pollution.
Front Section, Pages 2 on 01/09/2013